AICC Boxscore 2013

FINANCIAL CORNER

A Special Tax Update from Klingher Nadler LLP By Mitchell Klingher, Klingher Nadler, LLP

As we are sure you are all aware, Congress has passed and the President has signed the 2012 American Taxpayer Relief Act which, for now at least, has kept the country from going over the so-called “Fiscal Cliff.” Tax rates will be going up 4.6% for some of you on ordinary income and 5% on capital gains (in addition to the 3.8% increase that “Obamacare” has previously added for 2013). These rate increases are exacerbated by a new phase-out of itemized deductions and personal exemptions. On the plus side of the ledger, a number of key business incentives in the areas of business expensing, depreciation and research credits have been preserved for 2013. The following is a brief summary of the key provisions of this Act. Individuals Tax rates. The American Taxpayer Relief Act extends permanently the Bush-era income tax rates for all taxpayers except for taxpayers with taxable income above these thresholds: $400,000 for single individuals; $450,000 for married couples filing joint returns; and $425,000 for heads of households. Additionally, the new law revives the Pease limitation on itemized deductions and personal exemption phase out (PEP) after 2012 for higher-income individuals, but at revised thresholds. The new thresholds for being subject to both the Pease limitation and PEP after 2012 are $300,000 for married couples and surviving spouses; $275,000 for heads of households; $250,000 for unmarried taxpayers; and $150,000 for married couples filing separate returns.

Capital gains. Generally, the new law increases the top rate for qualified capital gains and dividends to 20% (the Bush-era top rate was 15%). The 20% rate will apply to the extent that a taxpayer’s income exceeds the $400,000/$425,000/$450,000 thresholds discussed above. The 15% Bush-era tax rate will continue to apply to all other taxpayers (in some cases, zero percent for qualified taxpayers within the 15-percent-or-lower income tax bracket). Payroll tax cut. The employee-side payroll tax holiday is not extended. For 2013, the two percentage-point reduction is no longer available and the employee share of Social Security taxes reverts to 6.2%. Alternative Minimum Tax (AMT). The Act patches permanently the AMT by giving taxpayers higher exemption amounts and other targeted relief. This relief is available beginning in 2012 and going forward. The permanent patch is expected to provide some certainty to planning for the AMT. Child tax credit and related incentives. The Act makes permanent the $1,000 child tax credit. Most of the Bush-era enhancements are also made permanent or extended. Along with the child tax credit, the new law makes permanent the enhanced adoption credit and income exclusion; the enhanced child and dependent care credit, and the Bush-era credit for employer- provided childcare facilities and services.

Both the President and the GOP have called for making the Tax Code simpler and fairer for individuals and businesses. “ ”

Education incentives. A number of popular education tax incentives are extended or made permanent by the

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